A sketch on the whiteboard in Saginaw County Controller Marc McGill's office shows the anticipated cost of the county's defined benefit retirement plan as it rises over the next few years. McGill says he expects that cost will peak at about $8.5 million in 2017, though the cost of retiree health care will likely peak at closer to $8.8 million around 2020, all rough estimates based on the county's last actuarial study.Mark Tower | MLive.com

If the rising cost of pensions and health care for county retirees goes unchecked, McGill explained to the commissioners' executive committee, it would likely mean more than a $4 million increase in costs over the next four years. He said that total would equate to laying off about 100 Saginaw County employees.

McGill has already predicted a $3 million budget deficit for next year's budget process and said it's no secret that the cost of providing health care and pensions to county retirees is to blame.

The bill, recently passed by both houses of the Michigan legislature, would allow local governments in Michigan to borrow funds to pay off unfunded pension and health care liabilities. Currently, counties are prohibited from bonding out those costs under state law, McGill said.

"The pluses are that your defined benefit retirement isn't going to cause you budget issues every year," he said. "And you're not going to have to face layoffs."

There are a few strings attached to the bill:

Local governments would need to act before Dec. 31, 2014

Before issuing each bond, approval would need to be given by the Michigan Department of Treasury

The governmental entity needs a credit rating of AA or higher

The government applying must take action to eliminate unfunded pension and retiree health care programs

Unfunded pension and retiree health care programs cannot be restored for the length of the bond term

McGill said some of those requirements have already been met by Saginaw County, since the county did away with its defined benefit pension system in the 1990s and the county-funded retiree health care program in 2005.

Using the county's current actuarial reports as a guide, McGill put together some very rough estimates to show commissioners the difference this all could make for the budget:

The cost of employee pensions, $5.1 million for 2013, would increase to a peak of about $8.5 million in 2017 and then gradually decline to about $1.5 million in 2042.

The cost of retiree healthcare, $5.3 million for 2013, would increase to a high of about $8.8 million in 2020 and gradually decline to about $700,000 in 2042.

Bonding the cost of those payments out would allow the county to pay $4.2 million each year through 2042 for retiree healthcare and between $4.6 and $4.5 million each year for the pension costs.

He illustrated the point with graphs for each, which shows a red line showing a spike in costs over the next several years, followed by a slope down toward an annual cost of $0 sometime in the future. A flat blue line on each graph shows the flat annual cost the county budget would incur if the legacy costs are paid with borrowed funds.

"If you do nothing, then you are going to have to live with that red line," McGill said. "For the next 15 years, the blue line is going to be a lot more comfortable for everybody."

Kari Blanchett, a senior managing consultant with Public Financial Management Group based in Ann Arbor, told commissioners this bill is meant as encouragement for governments to close out these type of plans, like Saginaw County has already done. Blanchett said it looks to be the right time, economically, to borrow such a large amount of money.

McGill said, had a plan like this already been in place, he would not have needed to recommend commissioners draw $1.8 million from budget reserves to fill an expected budget deficit.

"Because rates are so low right now, because your system has been closed and is going to zero, because you've got significant budget problems and this cures it, I want to get going on it right away," McGill told commissioners. "It's one of the best bills to enable municipalities who are struggling to get out and provide services I've ever seen."

He said he plans to go through the appropriate steps to determine what options commissioners might have and will like come back to the full Board of Commissioners with a proposal on bonding pensions in December. Exploring the bonding for retiree health care, he said, is more complex and could take a little longer.